com:20091023:RnsW2625B
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RNS Number : 2625B  
  
Provident Financial PLC  
  
23 October 2009  
  
Provident Financial plc   
  
Interim Management Statement  
  
23 October 2009  
  
Provident Financial plc, the leading UK non-standard lender, made the following 
Interim Management Statement today covering the period from 1 July to 22 October 
2009.  
  
Overview  
  
The group's careful and effective management of growth, impairment and costs has 
continued through the third quarter. There is no doubt that this remains the 
correct approach until there is clear evidence that the rate of increase both in 
unemployment and under-employment has abated.  The good performance of lending 
made through the downturn and the sound overall condition of the receivables 
portfolios leaves both businesses well positioned for the peak trading period 
and to deliver further profitable growth for the year.  
  
Market conditions  
  
Management has correctly held the view since the middle of 2007 that the UK 
economy would experience a marked deterioration, which has resulted in an 
increasingly cautious approach to lending and a heavy emphasis on maintaining an 
appropriate balance between growth, credit quality and collections capacity 
throughout the downturn.   
  
The group has continued to see pressure on household incomes from the impact of 
both rising unemployment and under-employment, which has reduced consumer 
confidence and introduced a greater level of caution into agents' lending 
decisions.  
  
At the same time, there continues to be a severe constraint on the flow of new 
loans to consumers in the UK non-standard lending market. Whilst the competitive 
conditions in the home-collected segment of this market have remained largely 
unchanged throughout the downturn, there is currently almost no new lending from 
active competitors in the direct repayment segment of the market in which 
Vanquis Bank and Real Personal Finance operate, due to the withdrawal or 
collapse of the main participants. This presents an enhanced medium-term 
opportunity for the group to execute its strategy of broadening its 
participation in this market.  
  
The group remains focussed upon lending small sums of unsecured credit to 
non-standard consumers who typically do not carry significant amounts of other 
indebtedness. This makes the businesses inherently more resilient than many 
other lenders at a time of rising unemployment and under-employment.  Within the 
home credit business, agents have a real-time understanding of their customers' 
circumstances through the 1.7 million collection visits made every week and also 
possess a high level of awareness of changes in local employment conditions, 
which they are able to factor into their lending decisions swiftly.  In 
addition, the agents' commission structure, which is based solely upon 
collections rather than credit issued, encourages them to lend smaller amounts 
for shorter periods when local economic conditions present a risk to customers' 
circumstances.  At Vanquis Bank, credit lines remain low and each customer's 
credit status is rechecked every month to identify signs of potential distress 
at an early stage, with close attention being paid to the level of undrawn 
credit lines to mitigate contingent risk.  
  
Business performance  
  
The Consumer Credit Division has deliberately slowed the rate of new customer 
growth during 2009 by being more selective in lending to new customers and by 
tightening the underwriting standards applied when re-serving existing 
customers. Customer numbers are currently around 4% higher than at the same 
point in 2008.  In this face-to-face business, it is crucially important to 
maintain the balance between rates of customer growth, credit quality and the 
collections capacity. The close attention paid to this balance, particularly 
through the investment in some 120 new field-based management roles over the 
last year, has supported a strong collections performance during the first nine 
months of 2009. This leaves the business and its receivables portfolio well 
placed as it moves into the peak lending period at the end of the year.  
  
The flow of new applications into Vanquis Bank remains strong, although tight 
underwriting standards have been maintained. As a result, only around 17% of 
card applications are currently being accepted. Customer numbers are 
approximately 5% higher than at the same point in 2008 after the closure of 
21,000 inactive accounts during the summer to mitigate the contingent risk 
associated with undrawn lines.  The performance of the credit line increase 
programme to existing customers, together with new account origination, remains 
very satisfactory with the arrears profile remaining stable throughout the third 
quarter.  
  
The collect-out of the Yes Car Credit receivables portfolio has now been 
successfully completed. As planned, the collections facility and the remaining 
infrastructure will be closed during November.  
  
Funding and capital  
  
The group recently launched and priced a new £250m 10-year senior public bond 
with a semi-annual coupon of 8%. This maiden benchmark senior debt issue 
represents an important strategic diversification of the group's funding base. 
At the same time, the group launched a tender auction process to redeem its 
£100m subordinated bonds ahead of their scheduled call date in June 2010.  The 
group's Individual Capital Guidance, set by the FSA in recent weeks, confirms 
that the group is able to operate with sufficient regulatory capital without 
requiring the Lower Tier 2 capital represented by these bonds, and they were 
therefore redeemed in order to rationalise the group's funding base. Valid 
tenders were received from some £94m of the £100m outstanding subordinated 
bonds. The combined effect of the new senior bond and the tender offer has been 
to raise additional facilities of approximately £160m, which is sufficient to 
fund the group's organic growth plans into 2011, and produces a revised blended 
rate of interest on the group's debt funding of approximately 7.4%.  
  
The group also continues to hold a significant level of surplus equity capital 
which stood at around £60m at the end of September.  
  
Regulation  
  
The group is assisting with the Office of Fair Trading's review of the £35bn 
high-cost consumer credit market which it announced in July 2009. The review, 
which covers a broad range of lending activities of which home credit is a 
relatively small element, is currently expected to publish its interim findings 
by the end of the year.  
  
Outlook  
  
The group's current planning assumes that there will be no material improvement 
in the rate of increase in unemployment until next Spring, and that a cautious 
approach to new lending will remain in place until then.  The good performance 
of lending made through the downturn and the sound overall condition of the 
receivables portfolios leaves both businesses well positioned for the peak 
trading period and to deliver further profitable growth for the year.   
  
Commenting on the company's performance, its Chief Executive Peter Crook said,  
  
 
"We have maintained a consistently cautious approach to both new lending and 
balance sheet funding throughout the economic downturn.  As we enter the peak 
trading period, we are well placed to deliver further profitable growth for 
2009. Once conditions in the employment market stabilise, the group has an 
enhanced opportunity to generate value from its strategy to broaden its 
participation in the UK non-standard consumer lending market.  
  
 I am delighted to report the success of the group's maiden £250m senior public 
bond, which both increases and diversifies the group's funding base."  
  
 
  Enquiries:                                                   
  Media                                                        
  David Stevenson, Provident Financial       01274 731111      
  Nigel Prideaux / Eilis Murphy, Brunswick   020 7404 5959     
                                                               
  Investor Relations                                           
  Stuart Caldwell, Provident Financial       01274 731111      
  
  
 
This information is provided by RNS  
  
The company news service from the London Stock Exchange  
  
  END  
  
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